Question

Which of the following is not true about generally accepted accounting principles (GAAP)?

GAAP provide guidelines as to how to account for specific events impacting the financial performance of a firm

The application GAAP accounting rules help ensure consistency so analysts can compare one firm’s financial performance to another

It is customary for Definitive Purchase Agreements to require that a target company represent that its financial books are kept in accordance with GAAP

GAAP always guarantees that a firm’s financial books are accurate

Differences between how a firm records actual financial transactions and how they should be recorded based on GAAP could indicate fraud or mismanagement.

Answer 1

The statement "GAAP always guarantees that a firm’s financial books are accurate" is NOT true

This is because following the guidelines provided under GAAP ensures that a firm's books are reliable and comparable with another firm's financial statements , but conformance with GAAP cannot guarantee that a firm's financial books are always accurate, since accountants are quite skilful when it comes to manipulation of financial data/ numbers even while conforming to the guidelines prescribed under GAAP